Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 12.1, Problem 3ST
To determine
Explain the advantage of Herfindahl index over four-firm and eight-firm concentration ratios.
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Students have asked these similar questions
what is the Four-firm concentration ratio (CR4)?
what is the Herfindahl-Hirshman Index (HHI)?
and how are they different?
What is the significance of the Herfindahl-Hirschman Index (HHI) in measuring market concentration and how does it impact competition within an industry?
"The Herfindahl-index (HHI) is empty and obscure, giving little clear basis for assessing the degree of actual market power". "The HHI is more broadly based and accurate than simple four-firm concentration ratios".
a. Are both statements true?
b. Is one ratio generally better? Explain with examples.
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Similar questions
- Is it true that a merger between two films that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshmau Index? Explain briefly.arrow_forwardSuppose that a small town has six burger shops whose respective shares of the local market are (as percentages of all hamburgers sold): 26%, 20%, 18%, 14%, 12%, 10%, What is the four-firm concentration ratio of the hamburger industry and what is the Hirchmann Herfindahl Index (HHI) for the hamburger industry in this town?arrow_forwardSuppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? In that same situation, what would the four-firm concentration ratio be?arrow_forward
- Consider an industry consists of three firms (Firm-A, Firm-B and Firm-C) with sales of AED300,000, AED700,000, and AED250,000; respectively. Calculate the Herfindahl-Hirschman index (HHI) for the industry. Calculate the four-firm concentration ratio (C4). Do you think the ‘Department of Justice’ (see the guideline below) would attempt to block a horizontal merger between Firm-A and Firm-C)? The Department of Justice’s Guidelines (Suppose): Suppose that the Department of Justice’s Guidelines suggest that antitrust authorities are more likely to challenge a merger when the relevant Herfindahl-Hirschman index is greater than 2,500 and the resulting increase in the index as a result of the merger is more than 200.arrow_forwardIs it true that a merger between two firms that are not already in the top four by size can affect both the four-firm concentration ratio and the Her findahl-Hirshman Index? Explain briefly.arrow_forwardWhat would the Herfindahl-Hirschman Index (HHI) be in each of the following situations? 1 firm with a monopoly in the marketarrow_forward
- What is the significance of the Herfindahl-Hirschman Index (HHI) in measuring market concentration and competition within an industry?arrow_forwardBased on United States Census Bureau data for 2017, for the utilities (electricity and gas) industry the four firm concentration ratio (C4) is 16.2 percent and the Herfindahl-Hirschman index is 161.4. Why might the actual concentration, and therefore market power enjoyed by a specific utility company in a state, be greater than what is indicated by these numbers? These ratios are calculated for the entire country, and not for a specific city or state. Please give an explanation.arrow_forwardFirm Market Share (%) A 30 B 29 C 16 D 12 E 7 F 6 Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be Multiple Choicearrow_forward
- Suppose that in the fast-food restaurant industry the four largest restaurants account for 30 %, 20%, 15%, and 5% of the market share, respectively, and the 10 other small restaurants each account for 3%. If two of the 10 small restaurants merged, other things being equal, what would be the four-firm concentration ratio (CR) and the Herfindahl-Hirschman index (HHI), respectively? Select one: a. 70% 1640 b. 70%; 1658 C. 71%; 1640 d: 71%; 1658arrow_forwardUse Table to calculate the four-firm concentration ratio for the U.S. auto market. Does this indicate a concentrated market or not?arrow_forwardAn industry consists of three firms with sales of $300,000, $700,000 and $250,000. a) Calculate the Herfindahl-Hirschman Index (HHI) b) Calculate the four-firm concentration ratio c) Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, do you think that the Department of Justice would attempt to block a horizontal merger between two firms with sales of $300,000 and $250,000? Explain.arrow_forward
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